Bulletin: NJ000002

Dear Associates:

The New Jersey Supreme Court has issued its opinions in the above cases. Both cases concerned title insurer's liability where a closing attorney absconds with the closing funds. Both cases hold the title insurer fully liable for the loss.

In the Client's Security Fund case, Security Title issued a insured closing letter to the lender. The closing attorney failed to pay off the prior mortgage. Security purchased the prior mortgage and subordinated it to the insured mortgage, claiming a second mortgage on the insured premises., The court ordered Security to discharge the mortgage holding in essence that the buyer was entitled to the same protection as the lender under the closing protection letter.

In the Sears case there was no closing protection letter. It was an all cash purchase. Again the closing attorney failed to pay off the prior mortgage. The court still held that Commonwealth was liable to pay off the prior mortgage, holding that the closing attorney was the agent of the title insurer. Copies of summaries of both cases are enclosed for your information.

Obviously the holdings in these cases clearly expand our liability far beyond that which we believed we were assuming in these types of transactions. In the Sears case the court directed the Committee of Civil Practice to study the way title closings are conducted by attorneys and to report back to the court. The company is studying the cases and will be issuing specific directives in the future. However, in the interim the following title practice should be observed:

Title Practice:

In all cash transactions, where no closing protection letter is requested, you must check with the state office to confirm that the attorney applicant is an approved attorney of the company before issuing a title commitment.